BoC cut raises chance of BoE move, hits sterling

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LONDON, Dec 4 (Reuters) - Sterling weakened versus the euro and the dollar on Tuesday as a surprise cut in Canadian interest rates prompted investors to step up bets for a policy easing from the Bank of England on Thursday.

In a Reuters poll last week, only 15 of the 56 economists forecast a UK rate cut from the current 5.75 percent. But analysts say chances of a move have since risen after the Bank of Canada cut rates on Tuesday, contrary to majority expectations for an on-hold decision.

The Canadian central bank said it expected global financial market difficulties stemming from a collapse of the U.S. subprime mortgage market to persist longer than anticipated.

“The Bank of Canada — which is a leading indicator for central banks, as they are probably the most forward-looking bank around — surprised the market and came out with a cut, and probably this is increasing the odds in the market that the Bank of England will also act,” said Sebastien Galy, FX analyst at Dresdner Kleinwort.

By 1506 GMT, sterling was down 0.3 percent at $2.0599 GBP=. The euro was up 0.8 percent on the day at 71.56 pence EURGBP=.

Tesco Plc, Britain’s biggest retailer, weighed into the rate debate on Tuesday, saying that consumers are a bit more cautious at the moment and calling on the Bank of England to cut rates “sooner rather than later”.